Payment of Bonus Act: A Handbook for HR Professionals

The Payment of Bonus Act makes eligible employers in India share part of their profits with employees as an annual statutory bonus. It applies to factories and to other establishments with 20 or more people, covers employees earning up to ₹21,000 a month, and sets a minimum bonus of 8.33% of salary or ₹100, whichever is higher, and a maximum of 20%. Under the Payment of Bonus Act, bonus must be paid within eight months of the end of the accounting year, and employees need at least 30 working days in that year to qualify.

Since 21 November 2025 these provisions sit inside the Code on Wages, 2019, but the mechanics HR teams use every year are largely the same. Picture Anita, HR manager at a 220-person auto-components plant near Pune, three weeks before the October festival payout. Finance has sent the profit figures. Last year it took her team eleven days and two spreadsheets that disagreed by ₹40,000. This year she wants it done in two. What she needs is a process that turns the Payment of Bonus Act into a correct number on 220 payslips, with the registers to prove it if an inspector asks next spring.

Who the Payment of Bonus Act Covers

Coverage has two tests: the establishment and the employee. Every factory is covered, and so is any other establishment that employed 20 or more people on any day of the accounting year. Once covered, an establishment stays covered even if headcount later falls. New establishments get a breathing space of up to five accounting years, ending earlier if they make a profit.

An employee qualifies if their salary or wage is up to ₹21,000 a month and they worked at least 30 working days in the year. Days on paid leave, maternity leave, lay-off and approved absences count as days worked. Apprentices are excluded. An employee dismissed for fraud, violent behaviour on the premises, theft, misappropriation or sabotage of company property loses the bonus for that year.

Calculating Bonus Under the Payment of Bonus Act

Two numbers trip people up. The first is the calculation salary. Bonus is calculated on the employee's actual salary or on a ceiling, whichever is lower, and the ceiling is ₹7,000 a month or the minimum wage for that employment, whichever is higher. In practice, many eligible employees have their bonus calculated on the ceiling rather than on their full pay. The second is the rate, which must be between 8.33% and 20% depending on the allocable surplus.

Take one of Anita's machine operators on ₹14,000 a month, where the applicable minimum wage is ₹12,500. The calculation salary is ₹12,500, or ₹1,50,000 for a full year. At the minimum 8.33%, bonus is ₹12,495. If the surplus supports 15%, it's ₹22,500. Someone who worked only part of the year gets a proportionate amount based on days worked.

Allocable Surplus, Set-On and Set-Off Under the Payment of Bonus Act

The rate above 8.33% depends on profit. Finance first works out the available surplus from the year's gross profit after prescribed deductions. The allocable surplus is 67% of that for most companies and 60% for other employers. If the allocable surplus is more than the maximum bonus payable, the excess is carried forward as a set-on for up to four years. If it's less than the minimum, the shortfall is carried forward as a set-off. HR doesn't need to calculate these alone, but it does need finance's figures before deciding the rate, and the working has to be kept.

Payment of Bonus Act Registers, Deadlines and Penalties

The traditional records are a register of allocable surplus (Form A), a set-on and set-off register (Form B), a register of bonus paid to each employee (Form C) and an annual return (Form D) filed within 30 days of payment. Bonus must be paid within eight months of the end of the accounting year, which for an April to March year means by 30 November, though many employers pay before Diwali. Late or missed payment can lead to recovery proceedings, fines and, for repeated breaches, prosecution. Our guide to statutory compliance puts bonus alongside your other annual obligations.

The Payment of Bonus Act After the Labour Codes

The Code on Wages keeps the core rules: minimum and maximum bonus, allocable surplus, set-on and set-off, and the payment deadline. The eligibility wage limit is to be notified by government, registers are being consolidated and can be kept electronically, and the new wage definition matters for the calculation base. Check your state's notified rules before this year's payout. The same codes also changed gratuity, which our guide to the Gratuity Act 1972 covers.

Running Payment of Bonus Act Calculations in OfficePortal

Anita's eleven days came from three sources disagreeing: attendance, salary data and the bonus sheet. In OfficePortal they're one record. Attendance tracking software gives each employee's days worked, including approved paid leave, so the 30-day test and pro-rata amounts come from the same data payroll uses. Cloud-based payroll software holds basic and DA for the calculation salary, pays the bonus as an earning component in the chosen pay run and recalculates TDS.

Joining and exit dates, and any dismissal that affects eligibility, sit in HR management software. Finance's surplus working, the signed registers and the annual return can be filed in the encrypted HR document management vault, ready for an inspector. Plants with large hourly workforces can see how this fits on our HR software for manufacturing page.

Conclusion: Payment of Bonus Act Compliance Made Routine with OfficePortal

OfficePortal turns the annual statutory bonus into a routine payroll task. Attendance gives each employee's days worked, including approved paid leave, for the 30-day test and pro-rata amounts. Payroll holds basic and DA for the calculation salary, pays the bonus as an earning component and recalculates TDS, and HR management records joining dates and any dismissal that affects eligibility. Surplus workings, registers and annual returns sit in the encrypted document vault, ready for an inspector. Everything is available on Android and iOS apps and protected by AES-256 encryption on SOC 2 compliant infrastructure. OfficePortal is free for up to five users, and Premium starts from ₹60 per user per month billed yearly. Start free or book a demo before your next payout.